Envisioning oil: ‘the magic ingredient’

Having considered the five economic links in the eight-link decision chain that it was recommended must be implemented if Guyana is to avoid the Dutch disease and achieve transformative and sustainable development, I came to the conclusion that Guyana is not in a good place, and now come to the critical political links (Reversing the Resource Curse: How to Harness Natural Resource Wealth for Accelerated Development. http://www.lse.ac.uk/lse-player?id=1803). As stated before, Professor Paul Collier argued that the five economic links will have to be implemented in an effective manner repeatedly over many years. The political framework for getting this done is, therefore, crucial. Collier argued that the resource curse is not inevitable if we are prepared to learn from history and identified Germany as the best run economy in Europe because in the last half of the 1940s it had been the worst and had learnt from that experience.

Very briefly, by the time it entered the First World War in 1914, Germany had overtaken Britain as world’s second largest industrial economy, behind the United States of America. But all this was to change as its engagement in that war ended in defeat and the imposition of the punishing Treaty of Versailles with terms that the noted economist John Maynard Keynes predicted were too difficult and would not result in a lasting peace. That war ended in 1918 and by the early 1920s, political and social conditions in Germany were extremely difficult. The national currency, collapsed from 8.9 per US$1 in 1918 to 4.2 trillion per US$1 by November 1923. All ‘non-essential’ imports, foodstuffs that could be replaced by local substitutes and raw materials for the consumer-oriented industries were banned. On the back of this rising dissatisfaction, Adolf Hitler (1933–45) came to government with some expansionist ideas, threw the country again into another war and lost, leaving it even more ruined.

Germany has a tradition that the state should play an important role in the economy, is cautious toward investment and risk-taking, is directed toward growth and the above political and economic experience provided a lesson about the need for fiscal balance that cannot be easily unlearnt. After the Second World War a social market economy focusing upon economic and social development came into being and many new institutions were established. A new currency, the Deutsche Mark, was established and just over a decade later a new central bank, with substantially more authority over monetary policy was established. A Federal Cartel Office to prevent the formation of monopolies and cartels and a Council of Economic Experts to provide objective evaluations on which economic policy were to be based were formed. In 1967, the Bundestag passed the Law for Promoting Stability and Growth, known as the Magna Carta of economic management, that set a number of targets for the four basic standards by which the German economic success is to be measured: currency stability, economic growth, employment levels, and trade balance, and those standards became popularly known as the ‘magic rectangle’…..